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Military Spending Linked to 18 Percent of Hawaii's Economy

FOR RELEASE

WednesdayJune 1, 2011

Up to 18 percent of Hawaii's economy can be linked to spending by the U.S. Department of Defense, according to a new study from the RAND Corporation.

"It's common knowledge that defense activity in Hawaii plays a significant role in Hawaii's economy, but the size of that role has not been previously studied and quantified," said James Hosek, lead author of the study and a senior economist at RAND, a nonprofit research organization. "For example, 20 percent of defense procurement goes to the professional, scientific and technical services industry, and generates further economic activity."

Defense department spending in Hawaii averaged $6.5 billion per year during fiscal years 2007-2009. Of that, $4.1 billion was for personnel and $2.4 billion for the purchase of goods and services in Hawaii.

These expenditures were associated with 101,000 jobs and $12.2 billion worth of the total value of goods produced and services provided in Hawaii — or 18 percent of Hawaii's economic activity in 2009.

The study was done in cooperation with the Hawaii Institute of Public Affairs and the Military Affairs Council of the Chamber of Commerce of Hawaii. These two public interest groups asked RAND to make an assessment of the relationship between defense department spending and Hawaii's levels of output, employment and earnings.

The RAND study collected information about defense spending on personnel and procurement, and estimated the relationship between these expenditures and the levels of output, employment and earnings in Hawaii's economy.

The study also considered the sensitivity of the estimates to a number of factors such as undercounting or overcounting defense procurement and state paid by defense personnel. Most factors made little difference, but different estimates of the savings rate of personnel and where the earnings of afloat and deployed personnel are spent could decrease the estimated economic impact by approximately 10 percent.

Hosek cautioned that the study should not be used as a basis for estimating how much a given increase or decrease in defense spending would affect the Hawaii economy, because there are other variables that must be considered.

The study also notes that defense department spending in Hawaii has increased by $1 billion since the mid-1990s. Future studies may want to examine what effect this increase has had on the dynamics of Hawaii's economy, including whether it has led to investments in Hawaii's private sector, infrastructure and people.

Research for the study was sponsored by the Office of the Secretary of Defense and conducted within the Forces and Resources Policy Center of the RAND National Defense Research Institute, a federally funded research and development center sponsored by the Secretary of Defense, the Joint Staff, the Unified Combatant Commands, the Navy, the Marine Corps, the defense agencies and the defense Intelligence community.

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Researcher Spotlight

Senior Economist

James Hosek is a senior economist at the RAND Corporation and a professor at the Pardee RAND Graduate School. An expert on defense manpower, Hosek has published studies in the areas of recruiting, retention, compensation, deployment, and personnel quality. His recent research includes work on…

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